Turkey Politics May 2016

Prime Minister Ahmet Davutoglu announced on 5 May that he would resign this month after he lost a political struggle against President Recep Tayyip Erdogan to control the ruling Justice and Development Party (AKP). Davutoglu stated that he would step down after an AKP extraordinary congress on 22 May. This decision paves the way for President Erdogan to choose an even more loyalist party member as Turkey’s new prime minister.

President Erdogan handpicked Davutoglu to succeed him as prime minister after he was elected president in August 2014. However, Davutoglu’s intention to act with more autonomy from the president on some political issues has been seen as a potential threat to Erdogan’s unrivaled authority. Davutoglu’s leadership over a migrant deal with the European Union, a less hawkish stance in the war against Kurdish militants in the southeast, and his weak enthusiasm about ushering in a presidential system in the country are seen as the main factors behind the disagreement. That said, the power struggle between the president and the prime minister reached a climax on 29 April following the AKP’s executive board decision to strip Davutoglu’s right to appoint local party leaders when he was on an official trip to Qatar.

In the economic arena, the two leaders clashed in the appointment of the new Central Bank governor. While Erdogan pushed for a candidate more willing to cut interest rates and boost growth, Davutoglu preferred a candidate that could foster investor confidence with a more orthodox monetary policy. With the strengthening of Erdogan’s profile, Central Bank Governor Murat Cetinkaya will certainly be under further pressure to ease monetary policy.

Given Erdogan’s tight grip on the party and his popularity among Turks, it is highly unlikely that the rift with Davutoglu will have any significant political cost for the president. Nevertheless, the Turkey-European Union deal regarding the refugee crises is hanging by a thread as the agreement was basically run by Davutoglu and his team. In order to keep the deal on track, Turkey has to implement several measures, including the reform of the anti-terror and anti-graft laws, which Erdogan has been loath to push forward.

The current account balance recorded a USD 4.2 billion deficit in November, above market expectations of USD 4.0 billion, and a sizeable increase from the USD 2.2 billion shortfall recorded in November 2016.